----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

| -   |  Restructuring our convertible debentures; |
|---------------|-------------------------------------------------|

| -   |  Resolving our dispute with our former partner in the US; |
|---------------|----------------------------------------------------------------|

| -   |  Embark on a strong drilling program, especially in Oklahoma Hunton; and |
|---------------|-------------------------------------------------------------------------------|

| -   |  Rationalize non-core assets to improve financial flexibility. |
|---------------|---------------------------------------------------------------------|

| -   | Completion of an acquisition of the working interests from a former joint venture partner adding approximately 3,100 boe/d of liquids-rich natural gas to our production base; |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Consolidation of our land position in the emerging Mississippian light oil play which we plan to begin drilling during 2012; |
|---------------|------------------------------------------------------------------------------------------------------------------------------|

| -   | Re-financing of $120 million of high cost convertible debentures with $45 million of lower cost convertible debentures and repaying the remainder with proceeds from non-core asset sales and low cost revolving bank debt; |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Reduction of the Company’s annual interest burden by approximately $2.5 million; |
|---------------|----------------------------------------------------------------------------------------|

| -   | The execution of a very successful 26 well drilling program; and |
|---------------|------------------------------------------------------------------|

| -   | The sale of non-core assets totaling $40 million during 2011 with another $8.3 sold in early 2012, reducing our debt burden and consolidating our asset base. |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

|                                                                                                         |   | Three months endedDecember 31 |     |   |   |   |    | Year endedDecember 30 |   |   |   |   |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|--------|--------|--------|---------|-----------------------|--------|--------|--------|--------|
| Financial and Operations Summary(in thousands except for volumes, percentages and per share and boe amounts) |   | 2011                          |     |   | 2010   |   |    | Change                |   |   | 2011   |   |   | 2010 |   |   | Change |   |
| FINANCIAL                                                                                                    |   |                          |     |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |
| Oil, NGL and natural gas revenues including realized hedging                                                 |   |                          | 42,360   |   |   |   | 34,704  |                  |   |   | 22     | %      |   |   | 163,714 |   |   |   | 143,713 |   |   |   | 14 | % |
| Funds from operations (1)                                                                                    |   |                          | 17,061   |   |   |   | 9,338   |                  |   |   | 83     | %      |   |   | 62,678 |   |   |   | 46,640 |   |   |   | 34 | % |
|   Per share – basic and diluted (2) (3) ($)                                                  |   |                          | 0.49     |   |   |   | 0.34    |                  |   |   | 44     | %      |   |   | 1.96 |   |   |   | 1.90 |   |   |   | 3 | % |
| Net income/(loss)                                                                                            |   |                          | (14,428  | )      |   |   | (38,556 | )                     |   |   | (63    | %)     |   |   | (13,960 | ) |   |   | (42,652 | ) |   |   | (67 | %) |
|   Per share – basic and diluted (2) (3) ($)                                                  |   |                          | (0.42    | )      |   |   | (1.39   | )                     |   |   | (70    | %)     |   |   | (0.44 | ) |   |   | (1.73 | ) |   |   | (75 | %) |
| Total assets                                                                                                 |   |                          | 466,554  |   |   |   | 392,486 |                  |   |   |   |   |   |   | 466,554 |   |   |   | 392,486 |   |   |   |   |   |
| Working capital includinglong-term debt (4)                                                                  |   |                          | (123,719 | )      |   |   | (36,743 | )                     |   |   |   |   |   |   | (123,719 | ) |   |   | (36,743 | ) |   |   |   |   |
| Convertible debentures                                                                                       |   |                          | 41,327   |   |   |   | 119,902 |                  |   |   |   |   |   |   | 41,327 |   |   |   | 119,902 |   |   |   |   |   |
| Shareholders’ equity                                                                                   |   |                          | 220,878  |   |   |   | 172,222 |                  |   |   |   |   |   |   | 220,878 |   |   |   | 172,222 |   |   |   |   |   |
| SHARES OUTSTANDING                                                                                           |   |                          |     |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares outstanding – basicand diluted(2) (3) (000s)                                                    |   |                          | 34,767   |   |   |   | 27,692  |                  |   |   |   |   |   |   | 32,040 |   |   |   | 24,595 |   |   |   |   |   |
| Shares outstanding at period end (3) (000s)                                                                  |   |                          | 34,779   |   |   |   | 27,710  |                  |   |   |   |   |   |   | 34,779 |   |   |   | 27,710 |   |   |   |   |   |
| OPERATIONS                                                                                                   |   |                          |     |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average daily production                                                                                     |   |                          |     |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Oil (bbls per day)                                                                               |   |                          | 1,961    |   |   |   | 2,501   |                  |   |   | (22    | %)     |   |   | 2,343 |   |   |   | 2,481 |   |   |   | (6 | %) |
|   NGL (bbls per day)                                                                               |   |                          | 3,581    |   |   |   | 2,373   |                  |   |   | 51     | %      |   |   | 3,048 |   |   |   | 2,491 |   |   |   | 22 | % |
|   Natural gas (mcf per day)                                                                        |   |                          | 33,669   |   |   |   | 22,529  |                  |   |   | 49     | %      |   |   | 28,507 |   |   |   | 24,878 |   |   |   | 15 | % |
|   Total (boe per day)                                                                              |   |                          | 11,154   |   |   |   | 8,629   |                  |   |   | 29     | %      |   |   | 10,142 |   |   |   | 9,118 |   |   |   | 11 | % |
| Average sales price                                                                                          |   |                          |     |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Oil ($ per bbl)                                                                                  |   |                          | 85.90    |   |   |   | 70.03   |                  |   |   | 23     | %      |   |   | 82.59 |   |   |   | 70.25 |   |   |   | 18 | % |
|   NGL ($ per bbl)                                                                                  |   |                          | 45.61    |   |   |   | 45.00   |                  |   |   | 1      | %      |   |   | 48.02 |   |   |   | 42.44 |   |   |   | 13 | % |
|   Gas ($ per mcf)                                                                                  |   |                          | 3.82     |   |   |   | 4.23    |                  |   |   | (10    | %)     |   |   | 3.81 |   |   |   | 4.57 |   |   |   | (17 | %) |
| Cash flow netback (1) ($ per boe)                                                                            |   |                          |     |   |   |   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Revenue (5)                                                                                      |   |                          | 41.28    |   |   |   | 43.71   |                  |   |   | (6     | %)     |   |   | 44.22 |   |   |   | 43.18 |   |   |   | 2 | % |
|   Royalties                                                                                        |   |                          | 8.29     |   |   |   | 8.77    |                  |   |   | (5     | %)     |   |   | 8.93 |   |   |   | 8.81 |   |   |   | 1 | % |
|   Production expenses                                                                              |   |                          | 10.17    |   |   |   | 10.67   |                  |   |   | (5     | %)     |   |   | 11.22 |   |   |   | 10.76 |   |   |   | 4 | % |
|   Transportation expenses                                                                          |   |                          | 0.33     |   |   |   | 0.79    |                  |   |   | (58    | %)     |   |   | 0.45 |   |   |   | 0.71 |   |   |   | (37 | %) |
|   Operating netback                                                                                |   |                          | 22.49    |   |   |   | 23.48   |                  |   |   | (4     | %)     |   |   | 23.62 |   |   |   | 22.90 |   |   |   | 3 | % |
|   General and administrative                                                                       |   |                          | 3.13     |   |   |   | 7.93    |                  |   |   | (61    | %)     |   |   | 3.49 |   |   |   | 5.78 |   |   |   | (40 | %) |
|   Cash interest expense                                                                            |   |                          | 2.72     |   |   |   | 3.56    |                  |   |   | (24    | %)     |   |   | 3.05 |   |   |   | 3.40 |   |   |   | (10 | %) |
|   Other cash costs (6)                                                                             |   |                          | 0.00     |   |   |   | 0.23    |                  |   |   | (100   | %)     |   |   | 0.15 |   |   |   | (0.29 | ) |   |   | (148 | %) |
|   Cash flow netback                                                                                |   |                          | 16.64    |   |   |   | 11.76   |                  |   |   | 41     | %      |   |   | 16.93 |   |   |   | 14.01 |   |   |   | 21 | % |

| (1) | Funds from operations is an additional GAAP measure and cash flow netback is a non-GAAP financial measures.  Please refer to “Additional GAAP Measures” and “Non-GAAP Financial Measures”. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Weighted average shares outstanding.  See Note 11 in Notes to Financial Statements. |
|-----|-----------------------------------------------------------------------------------------------|

| (3) | Restated to reflect the three for one exchange of trust units for common shares. |
|-----|----------------------------------------------------------------------------------|

| (4) | Working capital including long-term debt is a non-GAAP term and includes total bank debt, current assets and current liabilities excluding unrealized gains/losses on commodity contracts and deferred revenues. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Price received includes realized commodity contract gains or losses and excludes unrealized mark-to-market gain or loss. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

|                                        |   | 2011   |    |   | 2010   |   |
|---------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                        |   |   | Q4      |   |   |   | Q3 |   |   |   | Q2 |   |   |   | Q1 |   |   |   | Q4 |   |   |   | Q3 |   |   |   | Q2 |   |   |   | Q1 |   |
| Revenues including realized hedging         |   |   | 42,360  |   |   |   | 44,452 |   |   |   | 41,824 |   |   |   | 35,078 |   |   |   | 34,704 |   |   |   | 34,267 |   |   |   | 35,689 |   |   |   | 39,053 |   |
| Funds from operations                       |   |   | 17,061  |   |   |   | 17,435 |   |   |   | 16,602 |   |   |   | 11,580 |   |   |   | 9,338 |   |   |   | 11,402 |   |   |   | 11,357 |   |   |   | 14,543 |   |
| Income/(loss) before taxes                  |   |   | (11,043 | )      |   |   | (514 | ) |   |   | 8,651 |   |   |   | (6,205 | ) |   |   | (35,510 | ) |   |   | (3,846 | ) |   |   | (2,967 | ) |   |   | 2,009 |   |
| Net income/(loss)                           |   |   | (14,428 | )      |   |   | (2,642 | ) |   |   | 6,492 |   |   |   | (3,382 | ) |   |   | (38,556 | ) |   |   | (3,111 | ) |   |   | 2,720 |   |   |   | (3,705 | ) |
| Net income/(loss) per share basic(1) ($)    |   |   | (0.42   | )      |   |   | (0.08 | ) |   |   | 0.21 |   |   |   | (0.12 | ) |   |   | (1.39 | ) |   |   | (0.11 | ) |   |   | 0.12 |   |   |   | (0.17 | ) |
| Net income/(loss) per share diluted (1) ($) |   |   | (0.42   | )      |   |   | (0.08 | ) |   |   | 0.19 |   |   |   | (0.12 | ) |   |   | (1.39 | ) |   |   | (0.11 | ) |   |   | 0.12 |   |   |   | (0.17 | ) |

|                                           |   | Three months ended |    |   | Year ended  |   |
|------------------------------------------------|--------|--------------------|---------|--------|-------------|--------|
|  (in thousands of Canadian dollars)       |   | December 31        |    |   | December 31 |   |
|                                           | 2011   |               |    | 2010   |        |   | 2011 |   |   | 2010 |   |
| Oil, NGL and natural gas revenues              |   |               | 41,228  |   |        |   | 33,268 |   |   |   | 161,494 |   |   |   | 137,675 |   |
| Realized gain on commodity contracts           |   |               | 1,132   |   |        |   | 1,436 |   |   |   | 2,220 |   |   |   | 6,038 |   |
| Unrealized gain/(loss) on commodity contracts  |   |               | (2,868  | )      |        |   | (3,441 | ) |   |   | 5,525 |   |   |   | (1,013 | ) |
| Royalty expense                                |   |               | (8,505  | )      |        |   | (6,963 | ) |   |   | (33,054 | ) |   |   | (29,330 | ) |
| Revenues, net of royalty expense          |   |               | 30,987  |   |        |   | 24,300 |   |   |   | 136,185 |   |   |   | 113,370 |   |
| Operating expenses                             |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Production                                     |   |               | (10,431 | )      |        |   | (8,469 | ) |   |   | (41,557 | ) |   |   | (35,826 | ) |
| Transportation                                 |   |               | (343    | )      |        |   | (629 | ) |   |   | (1,665 | ) |   |   | (2,370 | ) |
| General and administrative                     |   |               | (3,217  | )      |        |   | (6,298 | ) |   |   | (12,914 | ) |   |   | (19,227 | ) |
| Share-based compensation expense               |   |               | (1,234  | )      |        |   | (435 | ) |   |   | (3,968 | ) |   |   | (2,900 | ) |
| Depletion and depreciation                     |   |               | (17,046 | )      |        |   | (9,938 | ) |   |   | (53,229 | ) |   |   | (47,252 | ) |
| Impairment of property, plant and equipment    |   |               | (27,486 | )      |        |   | (31,114 | ) |   |   | (27,486 | ) |   |   | (31,114 | ) |
|                                           |   |               | (59,757 | )      |        |   | (56,883 | ) |   |   | (140,819 | ) |   |   | (138,689 | ) |
| Other income/(expenses)                        |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                               |   |               | (3,002  | )      |        |   | (2,798 | ) |   |   | (12,042 | ) |   |   | (11,226 | ) |
| Accretion of decommissioning provision         |   |               | (199    | )      |        |   | (192 | ) |   |   | (727 | ) |   |   | (769 | ) |
| Gain on sale of assets                         |   |               | 16,769  |   |        |   | 200 |   |   |   | 17,595 |   |   |   | 2,005 |   |
| Transaction costs on asset acquisition         |   |               | -       |   |        |   | - |   |   |   | (1,767 | ) |   |   | - |   |
| Redemption premium on convertible debentures   |   |               | (976    | )      |        |   | - |   |   |   | (2,880 | ) |   |   | - |   |
| Revaluation of convertible debentures          |   |               | -       |   |        |   | - |   |   |   | - |   |   |   | (5,295 | ) |
| Amortization of trust unit issue costs         |   |               | -       |   |        |   | - |   |   |   | - |   |   |   | (1,000 | ) |
| Realized foreign exchange loss                 |   |               | (42     | )      |        |   | (82 | ) |   |   | (240 | ) |   |   | 1,674 |   |
| Unrealized foreign exchange gain/(loss)        |   |               | 5,177   |   |        |   | (55 | ) |   |   | (4,416 | ) |   |   | (384 | ) |
|                                           |   |               | 17,727  |   |        |   | (2,927 | ) |   |   | (4,477 | ) |   |   | (14,995 | ) |
| Loss before income taxes                       |   |               | (11,043 | )      |        |   | (35,510 | ) |   |   | (9,111 | ) |   |   | (40,314 | ) |
|                                           |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Income taxes                                   |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Current                                        |   |               | (61     | )      |        |   | (95 | ) |   |   | (391 | ) |   |   | (694 | ) |
|     Future taxes reduction |   |               | (3,324  | )      |        |   | (2,951 | ) |   |   | (4,458 | ) |   |   | (1,644 | ) |
|                                           |   |               | (3,385  | )      |        |   | (3,046 | ) |   |   | (4,849 | ) |   |   | (2,338 | ) |
|                                           |   |               |    |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Loss                                           |   |               | (14,428 | )      |        |   | (38,556 | ) |   |   | (13,960 | ) |   |   | (42,652 | ) |

|                                                              |   | Three months ended |    |   | Year ended  |   |
|-------------------------------------------------------------------|--------|--------------------|---------|--------|-------------|--------|
|                                                              |   | December 31        |    |   | December 31 |   |
| (in thousands of Canadian dollars)                                |   | 2011               |    |   | 2010        |   |   | 2011 |   |   | 2010 |   |
| Cash Flow from Operations                                         |   |               |    |   |        |   |   |   |   |   |   |   |
| Loss                                                              |   |               | (14,428 | )      |        |   | (38,556 | ) |   |   | (13,960 | ) |   |   | (42,652 | ) |
| Share-based compensation                                          |   |               | 1,234   |   |        |   | 435 |   |   |   | 3,968 |   |   |   | 2,900 |   |
| Depletion, depreciation and accretion                             |   |               | 17,046  |   |        |   | 9,938 |   |   |   | 53,229 |   |   |   | 47,252 |   |
| Impairment in property, plant and equipment                       |   |               | 27,486  |   |        |   | 31,114 |   |   |   | 27,486 |   |   |   | 31,114 |   |
| Non-cash interest expense on convertible debentures               |   |               | 207     |   |        |   | (32 | ) |   |   | 732 |   |   |   | (74 | ) |
| Accretion of decommissioning provision                            |   |               | 199     |   |        |   | 192 |   |   |   | 727 |   |   |   | 769 |   |
| Unrealized commodity contracts (gain)/loss                        |   |               | 2,868   |   |        |   | 3,441 |   |   |   | (5,525 | ) |   |   | 1,013 |   |
| Gain on sale of assets                                            |   |               | (16,769 | )      |        |   | (200 | ) |   |   | (17,595 | ) |   |   | (2,005 | ) |
| Transactions costs on asset acquisition                           |   |               | -       |   |        |   | - |   |   |   | 1,767 |   |   |   | - |   |
| Redemption premium on convertible debentures                      |   |               | 1,071   |   |        |   | - |   |   |   | 2,975 |   |   |   | - |   |
| Revaluation of convertible debentures                             |   |               | -       |   |        |   | - |   |   |   | - |   |   |   | 5,295 |   |
| Amortization of trust unit issue costs                            |   |               | -       |   |        |   | - |   |   |   | - |   |   |   | 1,000 |   |
| Unrealized foreign exchange(gain)/ loss                           |   |               | (5,177  | )      |        |   | 55 |   |   |   | 4,416 |   |   |   | 384 |   |
| Deferred tax reduction                                            |   |               | 3,324   |   |        |   | 2,951 |   |   |   | 4,458 |   |   |   | 1,644 |   |
| Funds from operations                                             |   |               | 17,061  |   |        |   | 9,338 |   |   |   | 62,678 |   |   |   | 46,640 |   |
| Cash paid on decommissioning provision                            |   |               | (403    | )      |        |   | (299 | ) |   |   | (1,652 | ) |   |   | (1,589 | ) |
| Transaction costs on asset acquisition                            |   |               | -       |   |        |   | - |   |   |   | (1,767 | ) |   |   | - |   |
|     Changes in non-cash working capital items |   |               | (2,342  | )      |        |   | 1,302 |   |   |   | (2,980 | ) |   |   | (10,615 | ) |
|     Cash from operating activities            |   |               | 14,316  |   |        |   | 10,341 |   |   |   | 56,279 |   |   |   | 34,436 |   |

| Production                          |   |                                |   |   |   |   |   |                  |   |   |   |   |
|-------------------------------------|--------|-------------------------------------|--------|--------|--------|--------|--------|-----------------------|--------|--------|--------|--------|
|                                |   | Three months ended December 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                | 2011   |                                |   | 2010   |   |   | Change |                  |   | 2011   |   |   | 2010 |   |   | Change |   |
| Daily sales volumes – average |   |                                |   |   |   |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Oil (bbls per day)                  |   |                                | 1,961  |   |   |   | 2,501  |                  |   |   | (22    | %)     |   |   | 2,343 |   |   |   | 2,481 |   |   |   | (6 | %) |
| NGL (bbls per day)                  |   |                                | 3,581  |   |   |   | 2,373  |                  |   |   | 51     | %      |   |   | 3,048 |   |   |   | 2,491 |   |   |   | 22 | % |
| Natural gas (mcf per day)           |   |                                | 33,669 |   |   |   | 22,529 |                  |   |   | 49     | %      |   |   | 28,507 |   |   |   | 24,878 |   |   |   | 15 | % |
| Total (boe per day)                 |   |                                | 11,154 |   |   |   | 8,629  |                  |   |   | 29     | %      |   |   | 10,142 |   |   |   | 9,118 |   |   |   | 11 | % |
|                                |   |                                |   |   |   |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales volumes mix by product        |   |                                |   |   |   |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                                 |   |                                | 18     | %      |   |   | 29     | %                     |   |   |   |   |   |   | 23 | % |   |   | 27 | % |   |   |   |   |
| NGL                                 |   |                                | 32     | %      |   |   | 28     | %                     |   |   |   |   |   |   | 30 | % |   |   | 27 | % |   |   |   |   |
| Natural gas                         |   |                                | 50     | %      |   |   | 43     | %                     |   |   |   |   |   |   | 47 | % |   |   | 46 | % |   |   |   |   |
|                                |   |                                | 100    | %      |   |   | 100    | %                     |   |   |   |   |   |   | 100 | % |   |   | 100 | % |   |   |   |   |

| ·   | 9 (7.5 net) Alliance Viking horizontal oil wells in Alberta; |
|--------------------|--------------------------------------------------------------|

| ·   | 6 (5.3 net) Twin Cities / Central Dolomite Hunton liquids-rich natural gas wells in Oklahoma; |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | 6 (5.2 net) Big Bird and K-9 Hunton vertical natural gas wells in Oklahoma; |
|--------------------|-----------------------------------------------------------------------------|

| ·   | 3 (3.0 net) Cardium horizontal oil wells in Alberta; |
|--------------------|------------------------------------------------------|

| ·   | 1 (0.8 net) Mississippian well in Oklahoma currently awaiting a fracture stimulation; and |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | 1 (1.0 net) dry hole located in Saskatchewan. |
|--------------------|-----------------------------------------------|

| Production by Geographic Area       |   |                                 |   |
|-------------------------------------|--------|--------------------------------------|--------|
|                                |   | Three months ended December 31, 2011 |   |
|                                | Canada |                                 |   | U.S. |   |   | Total |   |
| Daily sales volumes – average |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil (bbls per day)                  |   |                                 | 1,694  |   |   |   | 65 | % |   |   | 267 |   |   |   | 3 | % |   |   | 1,961 |   |   |   | 18 | % |
| NGL (bbls per day)                  |   |                                 | 40     |   |   |   | 2 | % |   |   | 3,541 |   |   |   | 41 | % |   |   | 3,581 |   |   |   | 32 | % |
| Natural gas (mcf per day)           |   |                                 | 5,218  |   |   |   | 33 | % |   |   | 28,451 |   |   |   | 56 | % |   |   | 33,669 |   |   |   | 50 | % |
| Total (boe per day)                 |   |                                 | 2,604  |   |   |   | 100 | % |   |   | 8,550 |   |   |   | 100 | % |   |   | 11,154 |   |   |   | 100 | % |

| Production by Geographic Area       |   |                         |   |
|-------------------------------------|--------|------------------------------|--------|
|                                |   | Year ended December 31, 2011 |   |
|                                | Canada |                         |   | U.S. |   |   | Total |   |
| Daily sales volumes – average |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil (bbls per day)                  |   |                         | 2,079  |   |   |   | 65 | % |   |   | 264 |   |   |   | 4 | % |   |   | 2,343 |   |   |   | 23 | % |
| NGL (bbls per day)                  |   |                         | 50     |   |   |   | 1 | % |   |   | 2,998 |   |   |   | 43 | % |   |   | 3,048 |   |   |   | 30 | % |
| Natural gas (mcf per day)           |   |                         | 6,558  |   |   |   | 34 | % |   |   | 21,949 |   |   |   | 53 | % |   |   | 28,507 |   |   |   | 47 | % |
| Total (boe per day)                 |   |                         | 3,222  |   |   |   | 100 | % |   |   | 6,920 |   |   |   | 100 | % |   |   | 10,142 |   |   |   | 100 | % |

| Pricing Benchmarks                     |   |                          |   |   |   |   |   |                  |   |   |   |   |   |   |   |
|----------------------------------------|--------|-------------------------------|--------|--------|--------|--------|--------|-----------------------|--------|--------|--------|--------|--------|--------|--------|
|                                   |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                   | 2011   |                          |   | 2010   |   |   | Change |                  |   | 2011   |   |   | 2010   |   |   | Change |   |
| WTI (US$ per bbl)                      |   |                          | 94.06  |   |   |   | 85.17  |                  |   |   | 10     | %      |   |   | 95.12  |   |   |   | 79.53 |   |   |   | 20 | % |
| Average exchange rate: US$ to Cdn$1.00 |   |                          | 0.98   |   |   |   | 0.99   |                  |   |   | (1     | %)     |   |   | 1.01   |   |   |   | 0.97 |   |   |   | 4 | % |
| WTI (Cdn$ per bbl)                     |   |                          | 95.94  |   |   |   | 86.02  |                  |   |   | 12     | %      |   |   | 94.17  |   |   |   | 81.92 |   |   |   | 15 | % |
| Edmonton Light                         |   |                          | 97.35  |   |   |   | 80.33  |                  |   |   | 21     | %      |   |   | 94.83  |   |   |   | 77.48 |   |   |   | 22 | % |
| Propane, Conway, Kansas (US$/bbl)      |   |                          | 54.32  |   |   |   | 51.01  |                  |   |   | 6      | %      |   |   | 56.89  |   |   |   | 47.24 |   |   |   | 20 | % |
| NYMEX (US$ per mmbtu)                  |   |                          | 3.61   |   |   |   | 3.81   |                  |   |   | (5     | %)     |   |   | 4.08   |   |   |   | 4.42 |   |   |   | (8 | %) |
| NYMEX (US$ per mcf) (1)                |   |                          | 3.74   |   |   |   | 3.94   |                  |   |   | (5     | %)     |   |   | 4.22   |   |   |   | 4.57 |   |   |   | (8 | %) |
| AECO daily index (Cdn$ per GJ)         |   |                          | 3.01   |   |   |   | 3.43   |                  |   |   | (12    | %)     |   |   | 3.43   |   |   |   | 3.79 |   |   |   | (9 | %) |
| AECO daily index (Cdn$ per mcf) (2)    |   |                          | 3.07   |   |   |   | 3.50   |                  |   |   | (12    | %)     |   |   | 3.50   |   |   |   | 3.86 |   |   |   | (9 | %) |

|   | (1)   Conversion rate of 1.0350 mmbtu per mcf. |
|--------|---------------------------------------------------------------|

|   | (2)   Conversion rate of 1.0194 GJ per mcf. |
|--------|------------------------------------------------------------|

| Average Commodity Prices Received                                    |   |                           |   |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------------|--------|--------------------------------|--------|--------|--------|--------|--------|------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                 |   | Three months ended December 31 |   |   |   |   |   | Year ended December 31 |   |   |   |   |
|                                                                 |   | 2011                           |   |   | 2010   |   |   | Change                 |   |   | 2011   |   |   | 2010   |   |   | Change |   |
| Oil (Cdn$ per bbl)                                                   |   |                           | 87.37  |   |   |   | 70.07  |                   |   |   | 25     | %      |   |   | 82.89  |   |   |   | 68.82 |   |   |   | 20 | % |
| Oil commodity contract settlements (Cdn$ per bbl)                    |   |                           | (1.47  | )      |   |   | (0.04  | )                      |   |   | 1000   | %      |   |   | (0.30  | )      |   |   | 1.43 |   |   |   | (121 | %) |
| Combined oil (Cdn$ per bbl)                                          |   |                           | 85.90  |   |   |   | 70.03  |                   |   |   | 23     | %      |   |   | 82.59  |   |   |   | 70.25 |   |   |   | 18 | % |
| NGL (Cdn$ per bbl)                                                   |   |                           | 45.61  |   |   |   | 45.00  |                   |   |   | 1      | %      |   |   | 48.02  |   |   |   | 42.44 |   |   |   | 13 | % |
| Natural gas (Cdn$ per mcf)                                           |   |                           | 3.37   |   |   |   | 3.53   |                   |   |   | (5     | %)     |   |   | 3.57   |   |   |   | 4.05 |   |   |   | (12 | %) |
| Natural gas commodity contract settlements  (Cdn$ per mcf) |   |                           | 0.45   |   |   |   | 0.70   |                   |   |   | (36    | %)     |   |   | 0.24   |   |   |   | 0.52 |   |   |   | (54 | %) |
| Combined natural gas (Cdn$ per mcf)                                  |   |                           | 3.82   |   |   |   | 4.23   |                   |   |   | (10    | %)     |   |   | 3.81   |   |   |   | 4.57 |   |   |   | (17 | %) |
| Total (1) (Cdn$ per boe)                                             |   |                           | 41.28  |   |   |   | 43.71  |                   |   |   | (6     | %)     |   |   | 44.22  |   |   |   | 43.18 |   |   |   | 2 | % |

| (1) | Price received excludes unrealized mark-to-market gain or loss on commodity contracts. |
|-----|----------------------------------------------------------------------------------------|

| Revenues(in thousands of Canadian dollars)                   |   |                           |   |   |   |   |   |                   |   |   |   |   |   |   |    |   |   |   |
|--------------------------------------------------------------|--------|--------------------------------|--------|--------|--------|--------|--------|------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|
|                                                         |   | Three months ended December 31 |   |   |   |   |   | Year ended December 31 |   |   |   |   |
|                                                         |   | 2011                           |   |   | 2010   |   |   | Change                 |   |   | 2011   |   |   | 2010   |    |   | Change |   |
| Oil revenues                                                 |   |                           | 15,766 |   |   |   | 16,124 |                   |   |   | (2     | %)     |   |   | 70,900  |   |   |   | 62,305 |   |   |   | 14 | % |
| NGL revenues                                                 |   |                           | 15,023 |   |   |   | 9,827  |                   |   |   | 53     | %      |   |   | 53,434  |   |   |   | 38,579 |   |   |   | 39 | % |
| Natural gas revenues                                         |   |                           | 10,439 |   |   |   | 7,317  |                   |   |   | 43     | %      |   |   | 37,160  |   |   |   | 36,790 |   |   |   | 1 | % |
| Realized gain/(loss) on commodity contracts                  |   |                           | 1,132  |   |   |   | 1,436  |                   |   |   | (21    | %)     |   |   | 2,220   |   |   |   | 6,038 |   |   |   | (63 | %) |
| Revenues including realized hedging                          |   |                           | 42,360 |   |   |   | 34,704 |                   |   |   | 22     | %      |   |   | 163,714 |   |   |   | 143,712 |   |   |   | 14 | % |
| Unrealized mark-to-market gain (loss) on commodity contracts |   |                           | (2,868 | )      |   |   | (3,441 | )                      |   |   | (17    | %)     |   |   | 5,525   |   |   |   | (1,013 | ) |   |   | (645 | %) |
| Revenues including commodity contracts                       |   |                           | 39,492 |   |   |   | 31,263 |                   |   |   | 26     | %      |   |   | 169,239 |   |   |   | 142,699 |   |   |   | 19 | % |

| Revenues by Geographic Area(in thousands of Canadian dollars) |   |                                |   |   |                        |   |   |   |   |   |   |   |
|---------------------------------------------------------------|--------|-------------------------------------|--------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                          |   | Three months endedDecember 31, 2011 |   |   | Year endedDecember 31, 2011 |   |   |   |   |
|                                                          | Canada |                                |   | U.S.   |                        |   | Total  |   |   | Canada |   |   | U.S. |   |   | Total |   |
| Oil revenues                                                  |   |                                | 13,594 |   |                        |   | 2,172  |   |   |   | 15,766 |   |   |   | 62,241 |   |   |   | 8,659 |   |   |   | 70,900 |   |
| NGL revenues                                                  |   |                                | 303    |   |                        |   | 14,720 |   |   |   | 15,023 |   |   |   | 1,512 |   |   |   | 51,922 |   |   |   | 53,434 |   |
| Natural gas revenues                                          |   |                                | 1,605  |   |                        |   | 8,834  |   |   |   | 10,439 |   |   |   | 8,902 |   |   |   | 28,258 |   |   |   | 37,160 |   |
| Realized gain/(loss) on commodity contracts                   |   |                                | (266   | )      |                        |   | 1,398  |   |   |   | 1,132  |   |   |   | (155 | ) |   |   | 2,375 |   |   |   | 2,220 |   |
| Revenues including realized hedging                           |   |                                | 15,236 |   |                        |   | 27,124 |   |   |   | 42,360 |   |   |   | 72,500 |   |   |   | 91,214 |   |   |   | 163,714 |   |
| Unrealized mark-to-market gain/(loss) on commodity contracts  |   |                                | (4,782 | )      |                        |   | 1,914  |   |   |   | (2,868 | )      |   |   | 881 |   |   |   | 4,644 |   |   |   | 5,525 |   |
| Revenues including commodity contracts                        |   |                                | 10,454 |   |                        |   | 29,038 |   |   |   | 39,492 |   |   |   | 73,381 |   |   |   | 95,858 |   |   |   | 169,239 |   |

| Derivative Instrument        | Commodity | Price (2)                                                | Volume per day (2)     | Period                                    |
|------------------------------|-----------|----------------------------------------------------------|------------------------|-------------------------------------------|
| Fixed                        | Gas       | 4.50 (US$/mmbtu)(4.66 US$/mcf)                           | 2,000 mmbtu(1,932 mcf) | April 1, 2011 –March 31, 2012       |
| Fixed                        | Gas       | 4.83 (US$/mmbtu)(5.00 US$/mcf)                           | 2,000 mmbtu(1,932 mcf) | April 1, 2011 –March 31, 2012       |
| Fixed                        | Gas       | 4.95 (US$/mmbtu)(5.12 US$/mcf)                           | 2,000 mmbtu(1,932 mcf) | January 1, 2012 – December 31, 2012 |
| Fixed                        | Gas       | 5.00 (US$/mmbtu)(5.18 US$/mcf)                           | 5,000 mmbtu(4,831 mcf) | January 1, 2012 – December 31, 2012 |
|                         |      |                                                     |                   |                                      |
| Fixed Basis Differential (1) | Gas       | Differential Fixed @ $0.35 US$/mmbtu($0.36 US$/mcf) | 7,000 mmbtu(6,763 mcf) | January 1, 2012 – December 31, 2012 |
|                         |      |                                                     |                   |                                      |
| Fixed                        | Oil       | 100.00 ($/bbl)                                           | 200 bbl                | January 1, 2012 – December 31, 2012 |
| Fixed                        | Oil       | 101.05 ($/bbl)                                           | 200 bbl                | January 1, 2012 – December 31, 2012 |
| Fixed                        | Oil       | 101.95 ($/bbl)                                           | 200 bbl                | January 1, 2012 – December 31, 2012 |
| Fixed                        | Oil       | 103.00 ($/bbl)                                           | 200 bbl                | January 1, 2012 – December 31, 2012 |

| (1)   | NYMEX / Southern Star (Oklahoma) basis differential. |
|-----------------|------------------------------------------------------|

| (2)   |     Conversion rates of 1.0350 mmbtu per mcf. |
|-----------------|-------------------------------------------------------------------|

| Derivative Instrument        | Commodity | Price (2)                                                                    | Volume per day (2)     | Period                                    |
|------------------------------|-----------|------------------------------------------------------------------------------|------------------------|-------------------------------------------|
| Collar                       | Gas       | Floor: 2.50 (US$/mmbtu)(2.59 US$/mcf)Ceiling: 3.45 (US$/mmbtu)(3.57 US$/mcf) | 2,000 mmbtu(1,932 mcf) | April 1, 2012 –October 31, 2012     |
| Fixed                        | Gas       | 3.00 (US$/mmbtu)(3.11 US$/mcf)                                               | 2,000 mmbtu(1,932 mcf) | April 1, 2012 –October 31, 2012     |
|                         |      |                                                                         |                   |                                      |
| Fixed Basis Differential (1) | Gas       | Differential Fixed @ $0.21 US$/mmbtu($0.22 US$/mcf)                     | 2,000 mmbtu(1,932 mcf) | April 1, 2012 – October 31, 2012    |
|                         |      |                                                                         |                   |                                      |
| Fixed                        | Oil       | 101.00 ($/bbl)                                                               | 200 bbl                | January 1, 2013 – December 31, 2013 |
| Fixed                        | Oil       | 101.50 ($/bbl)                                                               | 200 bbl                | January 1, 2013 – December 31, 2013 |
| Fixed                        | Oil       | 102.50 ($/bbl)                                                               | 200 bbl                | January 1, 2013 – December 31, 2013 |

| (1)   | NYMEX / Southern Star (Oklahoma) basis differential. |
|-----------------|------------------------------------------------------|

| (2)   | Conversion rates of 1.0350 mmbtu per mcf. |
|-----------------|-------------------------------------------|

| Royalties (in thousands of Canadian dollars except for percentages and per boe amounts) |   |                          |   |   |   |   |   |                  |   |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|--------|--------|--------|-----------------------|--------|--------|
|                                                                                    |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                                    | 2011   |                          |   | 2010   |   |   | Change |                  |   | 2011   |   |   | 2010 |   |   | Change |   |
| Royalties                                                                               |   |                          | 8,505  |   |   |   | 6,963  |                  |   |   | 22 | % |   |   | 33,054 |   |   |   | 29,330 |   |   |   | 13 | % |
| As a percentage of revenues before commodity contracts                                  |   |                          | 21     | %      |   |   | 21     | %                     |   |   |   |   |   |   | 20 | % |   |   | 21 | % |   |   |   |   |
| Royalties per boe ($)                                                                   |   |                          | 8.29   |   |   |   | 8.77   |                  |   |   | (5 | %) |   |   | 8.93 |   |   |   | 8.81 |   |   |   | 1 | % |

| Royalties by Geographic Area (in thousands of Canadian dollars except for percentages and per boe amounts) |   |
|------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |   | Three months endedDecember 31, 2011 |   |   | Year endedDecember 31, 2011 |   |
|                                                                                                       | Canada |   |   | U.S. |   |   | Canada |   |   | U.S. |   |
| Royalties                                                                                                  |   |   | 2,028 |   |   |   | 6,477 |   |   |   | 11,416 |   |   |   | 21,638 |   |
| As a percentage of revenues before commodity contracts                                                     |   |   | 13 | % |   |   | 25 | % |   |   | 16 | % |   |   | 24 | % |
| Royalties per boe ($)                                                                                      |   |   | 8.47 |   |   |   | 8.23 |   |   |   | 9.71 |   |   |   | 8.57 |   |

| Production Expense (in thousands Canadian dollars except for percentages and per boe amounts) |   |
|-----------------------------------------------------------------------------------------------|--------|
|                                                                                          |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |
|                                                                                          | 2011   |   |   | 2010 |   |   | Change |   |   | 2011 |   |   | 2010 |   |   | Change |   |
| Production expense                                                                            |   |   | 10,431 |   |   |   | 8,469 |   |   |   | 23 | % |   |   | 41,557 |   |   |   | 35,826 |   |   |   | 16 | % |
| Production expense per boe ($)                                                                |   |   | 10.17 |   |   |   | 10.67 |   |   |   | (5 | %) |   |   | 11.22 |   |   |   | 10.76 |   |   |   | 4 | % |

| Production Expense by Geographic Area (in thousands except for per boe amounts) |   |                                |   |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|
|                                                                            |   | Three months endedDecember 31, 2011 |   |   | Year endedDecember 31, 2011 |   |
|                                                                            | Canada |                                |   | U.S.   |   |   | Canada |   |   | U.S. |   |
| Production expenses                                                             |   |                                | 5,113  |   |   |   | 5,318 |   |   |   | 24,649 |   |   |   | 16,908 |   |
| Production expenses per boe ($)                                                 |   |                                | 21.34  |   |   |   | 6.76 |   |   |   | 20.96 |   |   |   | 6.69 |   |

| Transportation Expense (in thousands Canadian dollars except for percentages and per boe amounts) |   |
|---------------------------------------------------------------------------------------------------|--------|
|                                                                                              |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |
|                                                                                              | 2011   |   |   | 2010 |   |   | Change |   |   | 2011 |   |   | 2010 |   |   | Change |   |
| Transportation expense                                                                            |   |   | 343 |   |   |   | 629 |   |   |   | (45 | %) |   |   | 1,665 |   |   |   | 2,370 |   |   |   | (30 | %) |
| Transportation expense per boe ($)                                                                |   |   | 0.33 |   |   |   | 0.79 |   |   |   | (58 | %) |   |   | 0.45 |   |   |   | 0.71 |   |   |   | (37 | %) |

| General and Administrative Expense (in thousands Canadian dollars except for percentages and per boe amounts) |   |
|---------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                          |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |
|                                                                                                          | 2011   |   |   | 2010 |   |   | Change |   |   | 2011 |   |   | 2010 |   |   | Change |   |
| Gross G&A expense                                                                                         |   |   | 4,220 |   |   |   | 7,693 |   |   |   | (45 | %) |   |   | 17,162 |   |   |   | 24,392 |   |   |   | (30 | %) |
| Capitalized                                                                                                   |   |   | (327 | ) |   |   | (95 | ) |   |   | 244 | % |   |   | (1,588 | ) |   |   | (1,530 | ) |   |   | 4 | % |
| Recoveries                                                                                                    |   |   | (676 | ) |   |   | (1,300 | ) |   |   | (48 | %) |   |   | (2,660 | ) |   |   | (3,635 | ) |   |   | (27 | %) |
| G&A expense                                                                                               |   |   | 3,217 |   |   |   | 6,298 |   |   |   | (49 | %) |   |   | 12,914 |   |   |   | 19,227 |   |   |   | (33 | %) |
| G&A expense per boe ($)                                                                                   |   |   | 3.13 |   |   |   | 7.93 |   |   |   | (61 | %) |   |   | 3.49 |   |   |   | 5.78 |   |   |   | (40 | %) |

| Share-Based Compensation Expense (in thousands Canadian dollars except for percentages and per boe amounts) |   |
|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                        |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |
|                                                                                                        | 2011   |   |   | 2010 |   |   | Change |   |   | 2011 |   |   | 2010 |   |   | Change |   |
| Gross share-based compensation expense                                                                      |   |   | 1,368 |   |   |   | 498 |   |   |   | 175 | % |   |   | 4,284 |   |   |   | 3,205 |   |   |   | 34 | % |
| Capitalized                                                                                                 |   |   | (134 | ) |   |   | (63 | ) |   |   | 113 | % |   |   | (316 | ) |   |   | (305 | ) |   |   | 4 | % |
| Share-based compensation expense                                                                            |   |   | 1,234 |   |   |   | 435 |   |   |   | 184 | % |   |   | 3,968 |   |   |   | 2,900 |   |   |   | 37 | % |
| Share-based compensation expenseper boe ($)                                                                 |   |   | 1.20 |   |   |   | 0.55 |   |   |   | 118 | % |   |   | 1.07 |   |   |   | 0.87 |   |   |   | 23 | % |

| Depletion and Depreciation (in thousands Canadian dollars except for percentages and per boe amounts) |   |
|-------------------------------------------------------------------------------------------------------|--------|
|                                                                                                  |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |
|                                                                                                  | 2011   |   |   | 2010 |   |   | Change |   |   | 2011 |   |   | 2010 |   |   | Change |   |
| D&D                                                                                               |   |   | 17,046 |   |   |   | 9,938 |   |   |   | 72 | % |   |   | 53,229 |   |   |   | 47,252 |   |   |   | 13 | % |
| D&D per boe ($)                                                                                   |   |   | 16.61 |   |   |   | 12.52 |   |   |   | 33 | % |   |   | 14.38 |   |   |   | 14.20 |   |   |   | 1 | % |

| Interest Expense (in thousands of Canadian except for percentages and per boe amounts) |   |
|----------------------------------------------------------------------------------------|--------|
|                                                                                   |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |
|                                                                                   | 2011   |   |   | 2010 |   |   | Change |   |   | 2011 |   |   | 2010 |   |   | Change |   |
| Cash interest expense on long-term debt                                                |   |   | 1,341 |   |   |   | 461 |   |   |   | 191 | % |   |   | 4,250 |   |   |   | 2,364 |   |   |   | 80 | % |
| Cash interest expense on convertible debentures                                        |   |   | 1,455 |   |   |   | 2,398 |   |   |   | (39 | %) |   |   | 7,088 |   |   |   | 9,684 |   |   |   | (27 | %) |
| Cash interest income                                                                   |   |   | (1 | ) |   |   | (29 | ) |   |   | (97 | %) |   |   | (28 | ) |   |   | (748 | ) |   |   | (96 | %) |
| Subtotal cash interest expense                                                         |   |   | 2,795 |   |   |   | 2,830 |   |   |   | (1 | %) |   |   | 11,310 |   |   |   | 11,300 |   |   |   | 0 | % |
| Non-cash amortization of premium on convertible debentures                             |   |   | - |   |   |   | (32 | ) |   |   | (100 | %) |   |   | (21 | ) |   |   | (74 | ) |   |   | (72 | %) |
| Non-cash accretion on convertible debentures                                           |   |   | 207 |   |   |   | - |   |   |   | 100 | % |   |   | 753 |   |   |   | - |   |   |   | 100 | % |
| Total interest expense                                                                 |   |   | 3,002 |   |   |   | 2,798 |   |   |   | 7 | % |   |   | 12,042 |   |   |   | 11,226 |   |   |   | 7 | % |
| Cash interest expense per boe on long-term debt ($)                                    |   |   | 1.30 |   |   |   | 0.58 |   |   |   | 124 | % |   |   | 1.15 |   |   |   | 0.71 |   |   |   | 62 | % |
| Cash interest expense per boe on convertible debentures ($)                            |   |   | 1.42 |   |   |   | 3.02 |   |   |   | (53 | %) |   |   | 1.91 |   |   |   | 2.91 |   |   |   | (34 | %) |
| Cash interest income per boe ($)                                                       |   |   | - |   |   |   | (0.04 | ) |   |   | (100 | %) |   |   | (0.01 | ) |   |   | (0.22 | ) |   |   | (95 | %) |
| Total cash interest expense per boe ($)                                                |   |   | 2.72 |   |   |   | 3.56 |   |   |   | (24 | %) |   |   | 3.05 |   |   |   | 3.40 |   |   |   | (10 | %) |

| Funds from Operations (in thousands of Canadian dollars) |   |
|----------------------------------------------------------|--------|
|                                                     |   | Three months endedDecember 31 |   |   | Year endedDecember 31 |   |
|                                                     | 2011   |   |   | 2010 |   |   | 2011 |   |   | 2010 |   |
| Cash provided by operating activities                    |   |   | 14,316 |   |   |   | 10,341 |   |   |   | 56,279 |   |   |   | 34,436 |   |
| Changes in non-cash working capital items                |   |   | 2,342 |   |   |   | (1,302 | ) |   |   | 2,980 |   |   |   | 10,615 |   |
| Decommissioning provision costs incurred                 |   |   | 403 |   |   |   | 299 |   |   |   | 1,652 |   |   |   | 1,589 |   |
| Transaction costs for asset acquisition                  |   |   | - |   |   |   | - |   |   |   | 1,767 |   |   |   | - |   |
| Funds from operations                                    |   |   | 17,061 |   |   |   | 9,338 |   |   |   | 62,678 |   |   |   | 46,640 |   |

| Cash Flow Netback (in thousand of Canadian dollars, except for per share and per boe amounts) |   |
|-----------------------------------------------------------------------------------------------|--------|
|                                                                                          |   | Three months endedDecember 31 |   |   | Year endedDecember 31 |   |
|                                                                                          | 2011   |   |   | 2010 |   |   | 2011 |   |   | 2010 |   |
| Net income/(loss)                                                                             |   |   | (14,428 | ) |   |   | (38,556 | ) |   |   | (13,960 | ) |   |   | (42,652 | ) |
| Share-based compensation                                                                      |   |   | 1,234 |   |   |   | 435 |   |   |   | 3,968 |   |   |   | 2,900 |   |
| Depletion and depreciation                                                                    |   |   | 17,046 |   |   |   | 9,938 |   |   |   | 53,229 |   |   |   | 47,252 |   |
| Impairment in property, plant and equipment                                                   |   |   | 27,486 |   |   |   | 31,114 |   |   |   | 27,486 |   |   |   | 31,114 |   |
| Non-cash interest on convertible debentures                                                   |   |   | 207 |   |   |   | (32 | ) |   |   | 732 |   |   |   | (74 | ) |
| Accretion of decommissioning provision                                                        |   |   | 199 |   |   |   | 192 |   |   |   | 727 |   |   |   | 769 |   |
| Unrealized commodity contracts (gain)/loss                                                    |   |   | 2,868 |   |   |   | 3,441 |   |   |   | (5,525 | ) |   |   | 1,013 |   |
| Gain on sale of assets                                                                        |   |   | (16,769 | ) |   |   | (200 | ) |   |   | (17,595 | ) |   |   | (2,005 | ) |
| Transaction costs on asset acquisition                                                        |   |   | - |   |   |   | - |   |   |   | 1,767 |   |   |   | - |   |
| Redemption premium on convertible debentures                                                  |   |   | 1,071 |   |   |   | - |   |   |   | 2,975 |   |   |   | - |   |
| Revaluation of convertible debentures                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 5,295 |   |
| Amortization of trust unit issue costs                                                        |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,000 |   |
| Unrealized foreign exchange (gain)/loss                                                       |   |   | (5,177 | ) |   |   | 55 |   |   |   | 4,416 |   |   |   | 384 |   |
| Deferred tax (reduction)/expense                                                              |   |   | 3,324 |   |   |   | 2,951 |   |   |   | 4,458 |   |   |   | 1,644 |   |
| Funds from operations                                                                         |   |   | 17,061 |   |   |   | 9,338 |   |   |   | 62,678 |   |   |   | 46,640 |   |
| Total volume (mboe)                                                                           |   |   | 1,025 |   |   |   | 794 |   |   |   | 3,702 |   |   |   | 3,328 |   |
| Cash flow netback (non-GAAP) ($ per boe)                                                      |   |   | 16.64 |   |   |   | 11.76 |   |   |   | 16.93 |   |   |   | 14.01 |   |

| Capital Expenditures (in thousands of Canadian dollars except for percentages) |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   | Three months endedDecember 31 |   |   |   |   |   | Year endedDecember 31 |   |   |   |   |
|                                                                           | 2011   |   |   | 2010 |   |   | Change |   |   | 2011 |   |   | 2010 |   |   | Change |   |
| Property, plant and equipment expenditures                                     |   |   | 7,969 |   |   |   | 14,406 |   |   |   | (45 | %) |   |   | 69,800 |   |   |   | 60,053 |   |   |   | 16 | % |
| Exploration and evaluation expenditures                                        |   |   | 320 |   |   |   | 11,047 |   |   |   | (97 | %) |   |   | 11,791 |   |   |   | 17,625 |   |   |   | (33 | %) |
| Hunton asset acquisition (1)                                                   |   |   | - |   |   |   | - |   |   |   | 0 | % |   |   | 91,656 |   |   |   | - |   |   |   | 100 | % |
| Amounts recovered under agreement                                              |   |   | - |   |   |   | - |   |   |   | 0 | % |   |   | - |   |   |   | (3,503 | ) |   |   | (100 | %) |
| Dispositions                                                                   |   |   | (38,939 | ) |   |   | (40 | ) |   |   | 1000 | % |   |   | (41,144 | ) |   |   | (26,272 | ) |   |   | 57 | % |
| Total                                                                          |   |   | (30,650 | ) |   |   | 25,413 |   |   |   | (221 | %) |   |   | 132,103 |   |   |   | 47,903 |   |   |   | 176 | % |

|   | (1) Includes the settlement of $5.6 million (US$5.8 million) in receivables from JV Participant. |
|--------|--------------------------------------------------------------------------------------------------|

| ·   | $33.1 million on wells, drilling and workovers; |
|--------------------|-------------------------------------------------|

| ·   | $10.0 million on facilities and other equipment maintenance; |
|--------------------|--------------------------------------------------------------|

|   | · | $3.0 million on land and seismic acquisition; and |
|--------|--------|---------------------------------------------------|

|   | · | $1.2 million related to the capitalization of certain G&A costs attributable to exploration and development activities. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   | $91.7 million to acquire the working interests in shared wells from a former joint venture participant (US$95.0 million at $0.965 CAD/USD); |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $23.5 million related to wells, drilling and workovers; |
|--------------------|---------------------------------------------------------|

| ·   | $2.6 million on acquisitions of land for future development in Oklahoma; |
|--------------------|--------------------------------------------------------------------------|

| ·   | $7.6 million on capital enhancements; and |
|--------------------|-------------------------------------------|

| ·   | $0.5 million related to the capitalization of certain G&A costs attributable to exploration and development activities. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| Commitments                                |   |
|--------------------------------------------|--------|
| (in thousands of Canadian dollars)         |   | 2012 |   |   | 2013 |   |   | 2014 |   |   |   | 2015 – 2016 |   |   | Total |   |
| Long-term debt (1)                         |   |   | - |   |   |   | 138,820 |   |   |   | - |   |   |   | - |   |   |   | 138,820 |   |
| Interest on long-term debt (2)             |   |   | 4,539 |   |   |   | 2,176 |   |   |   | - |   |   |   | - |   |   |   | 6,715 |   |
| Convertible debentures (3)                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 45,000 |   |   |   | 45,000 |   |
| Interest on convertible debentures (3)     |   |   | 3,038 |   |   |   | 3,038 |   |   |   | 3,038 |   |   |   | 3,798 |   |   |   | 12,912 |   |
| Accounts payable & accrued liabilities |   |   | 24,239 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 24,239 |   |
| Decommissioning provision                  |   |   | 557 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 557 |   |
| Office leases (4)                          |   |   | 1,211 |   |   |   | 1,169 |   |   |   | 1,178 |   |   |   | 1,472 |   |   |   | 5,030 |   |
| Vehicle and other operating leases         |   |   | 168 |   |   |   | 101 |   |   |   | 76 |   |   |   | - |   |   |   | 345 |   |
| Total obligations                          |   |   | 33,752 |   |   |   | 145,304 |   |   |   | 4,292 |   |   |   | 50,270 |   |   |   | 233,618 |   |

|                                                                |   | December 31, 2011 |    |   | December 31, 2010 |   |
|---------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|
| Capitalization (in thousand of Canadian dollars except percentages) |   | Amount            |    |   | %                 |   |   | Amount |   |   | % |   |
| Long-term debt (1)                                                  |   |              | 138,820 |   |              |   | 43 | % |   |   | 24,865 |   |   |   | 8 | % |
| Working capital deficit (surplus)(2) excluding long-term debt       |   |              | (15,101 | )      |              |   | (5 | %) |   |   | 11,878 |   |   |   | 3 | % |
| Working capital deficit (surplus)(2) including long-term debt       |   |              | 123,719 |   |              |   | 38 | % |   |   | 36,743 |   |   |   | 11 | % |
| Convertible debentures                                              |   |              | 41,327  |   |              |   | 13 | % |   |   | 119,902 |   |   |   | 37 | % |
| Shares issued, at market (3)                                        |   |              | 159,638 |   |              |   | 49 | % |   |   | 169,584 |   |   |   | 52 | % |
| Total capitalization                                                |   |              | 324,684 |   |              |   | 100 | % |   |   | 326,229 |   |   |   | 100 | % |

| (1) | As at December 31, 2011, the long-term debt balance consisted of US$136.5 million converted at the closing exchange rate of CDN$1.017 per US$1.00. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Working capital excludes deferred revenues and unrealized gains and losses on commodity contracts. |
|-----|----------------------------------------------------------------------------------------------------|

| (3) | The market price of Equal’s shares on December 31, 2011 was $4.59 per share (December 31, 2010 – $6.12 per share). |
|-----|--------------------------------------------------------------------------------------------------------------------------------|

|                                                 |   | As at December 31 |   |
|------------------------------------------------------|--------|-------------------|--------|
| (in thousands of Canadian dollars except for ratios) |   | 2011              |   |   | 2010 |   |
| Interest coverage (1):                               |   |              |   |   |   |   |
| Cash flow over the prior four quarters               |   |              | 69,246 |   |   |   | 58,688 |   |
| Interest expenses over the prior four quarters       |   |              | 11,338 |   |   |   | 12,048 |   |
| Interest coverage ratio                              |   | 6.11 : 1.00       |   |   | 4.87 : 1.00 |   |

| (1) | These amounts are defined terms within the credit agreements. |
|-----|---------------------------------------------------------------|

|                                               |   | As at December 31 |     |
|----------------------------------------------------|--------|-------------------|----------|
| Working Capital (in thousands of Canadian dollars) |   | 2011              |     |   | 2010 |   |
| Cash                                               |   |              | 5,553    |   |   |   | 2,505 |   |
| Accounts receivable                                |   |              | 25,174   |   |   |   | 24,891 |   |
| Prepaid expenses, deposits and other               |   |              | 870      |   |   |   | 2,093 |   |
| Assets held for sale                               |   |              | 9,678    |   |   |   | - |   |
| Accounts payable and accrued liabilities           |   |              | (24,239  | ) |   |   | (31,321 | ) |
| Liabilities associated with assets held for sale   |   |              | (1,378   | ) |   |   | - |   |
| Current portion of decommissioning provision       |   |              | (557     | ) |   |   | - |   |
| Due to JV Participant                              |   |              | -        |   |   |   | (10,046 | ) |
| Working capital (deficit)                          |   |              | 15,101   |   |   |   | (11,878 | ) |
| Long-term debt                                     |   |              | (138,820 | ) |   |   | (24,865 | ) |
| Working capital (deficit) including long-term debt |   |              | (123,719 | ) |   |   | (36,743 | ) |

|   Year   |  WTI Oil($U.S./bbl) | Edmonton LightCrude Oil($Cdn/bbl) | AECO Gas($Cdn/MMBtu) | Henry Hub($U.S./Mmbtu) | ForeignExchangeRate (US$/CAD) |
|--------------------|--------------------------|-----------------------------------|----------------------|------------------------|-------------------------------|
| 2012               | 97.50                    | 99.00                             | 3.50                 | 3.75                   | 0.975                         |
| 2013               | 97.50                    | 99.00                             | 4.20                 | 4.50                   | 0.975                         |
| 2014               | 100.00                   | 101.50                            | 4.70                 | 5.05                   | 0.975                         |
| 2015               | 100.80                   | 102.30                            | 5.10                 | 5.50                   | 0.975                         |
| 2016               | 101.70                   | 103.20                            | 5.55                 | 5.95                   | 0.975                         |
| 2017               | 102.70                   | 104.20                            | 5.90                 | 6.35                   | 0.975                         |
| EscalateThereafter | Average2% per year       | Average2% per year                | Average2% per year   | Average2% per year     | 0.975                         |

|                        |   | Proved |   |   | Probable |   |   | Total  |   |
|-----------------------------|--------|--------|--------|--------|----------|--------|--------|--------|--------|
| December 31, 2009           |   |   | 22,338 |   |     |   | 8,908  |   |   |   | 31,246 |   |
| Discoveries and extensions  |   |   | 2,166  |   |     |   | 1,002  |   |   |   | 3,168 |   |
| Acquisitions                |   |   | 682    |   |     |   | 243    |   |   |   | 925 |   |
| Dispositions                |   |   | (803   | )      |     |   | (623   | )      |   |   | (1,426 | ) |
| Production                  |   |   | (3,328 | )      |     |   | -      |   |   |   | (3,328 | ) |
| Revision of prior estimates |   |   | 4,802  |   |     |   | (3,467 | )      |   |   | 1,335 |   |
| December 31, 2010           |   |   | 25,857 |   |     |   | 6,063  |   |   |   | 31,920 |   |
| Discoveries and extensions  |   |   | 5,409  |   |     |   | 1,246  |   |   |   | 6,655 |   |
| Acquisitions                |   |   | 8,409  |   |     |   | 1,177  |   |   |   | 9,586 |   |
| Dispositions                |   |   | (1,695 | )      |     |   | (1,790 | )      |   |   | (3,485 | ) |
| Production                  |   |   | (3,702 | )      |     |   | -      |   |   |   | (3,702 | ) |
| Revision of prior estimates |   |   | 576    |   |     |   | (3,386 | )      |   |   | (2,810 | ) |
| December 31, 2011           |   |   | 34,854 |   |     |   | 3,310  |   |   |   | 38,164 |   |

| (in thousands of Canadian dollars except for ratios and amounts in $/boe)          | Years Ended December 31 | 3-Year  |
|------------------------------------------------------------------------------------|-------------------------|---------|
| 2011                                                                               | 2010                    | 2009    | Total |
| Capital expenditures (1)                                                           | 81,591                  | 54,522  | 16,445 | 152,558 |
| Future Development CostsProved                                                     | 97,720                  | 63,094  | 64,811 | 225,625 |
| Proved plus probable                                                               | 109,114                 | 87,762  | 100,678 | 297,554 |
| Reserves (2)                                                                       |                    |    |   |   |
| Proved reserves added in the year (mboe)                                           | 5,985                   | 6,963   | 5,447 | 18,395 |
| Probable reserves added in the year (mboe)                                         | (2,139)                 | (2,465) | 1,599 | (3,005) |
| Proved plus probable reserves added in the year  (mboe)                  | 3,846                   | 4,498   | 7,046 | 15,390 |
|                                                                               |                    |    |   |   |
| F&D costs (excluding changes in FDC)                                           |                    |    |   |   |
| Proved reserves ($/boe)                                                            | 13.63                   | 7.83    | 3.02 | 8.29 |
| Proved plus probable reserves ($/boe)                                              | 21.21                   | 12.12   | 2.33 | 9.91 |
|                                                                               |                    |    |   |   |
| F&D costs (including changes in FDC)                                           |                    |    |   |   |
| Proved reserves ($/boe)                                                            | 19.29                   | 8.03    | 9.17 | 10.18 |
| Proved plus probable reserves ($/boe) (5)                                          | 29.46                   | 10.19   | 10.21 | 12.79 |
|                                                                               |                    |    |   |   |
| Recycle ratios                                                                     |                    |    |   |   |
| Operating netbacks ($/boe) (3)                                                     | 23.62                   | 22.90   | 20.02 | 22.17 |
| Operating recycle ratio (based on proved reserves including FDC) (5)               | 1.2                     | 2.9     | 2.2 | 2.2 |
| Operating recycle ratio (based on proved plus probable reserves including FDC) (5) | 0.8                     | 2.2     | 2.0 | 1.7 |
| Corporate netbacks ($/boe) (4)                                                     | 16.93                   | 14.01   | 12.94 | 14.66 |
| Corporate recycle ratio (based on proved reserves including FDC) (5)               | 0.9                     | 1.7     | 1.4 | 1.4 |
| Corporate recycle ratio (based on proved plus probable reserves including FDC) (5) | 0.6                     | 1.4     | 1.3 | 1.1 |

| (1)   | Excludes acquisitions. |
|-----------------|------------------------|

| (2)   | Includes revisions and excludes acquisitions. |
|-----------------|-----------------------------------------------|

| (3)   | Operating netbacks are production revenue less royalties and operating expenses. |
|-----------------|----------------------------------------------------------------------------------|

| (4)   | Corporate netbacks are production revenue less royalties, operating expenses, G&A, interest expense and other cash costs. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Canadian 2011 change in FDC adjusted by $11.2 million to reflect disposition of assets on November 15, 2011. |
|-----------------|--------------------------------------------------------------------------------------------------------------|

| (in thousands of Canadian dollars except for ratios and amounts in $/boe)            | For the year endedDecember 31, 2011 |
|--------------------------------------------------------------------------------------|-------------------------------------|
| Capital expenditures including acquisitions and dispositions                         | 132,103                             |
|                                                                                 |                                |
| Change in FDC                                                                        |                                |
| Proved                                                                               | 34,625                              |
| Proved plus probable                                                                 | 21,353                              |
|                                                                                 |                                |
| Reserves (mboe)                                                                      |                                |
| Proved reserves – additions, revisions and A&D                             | 12,699                              |
| Probable reserves – additions, revisions and A&D                           | (2,752)                             |
| Proved plus probable reserves (mboe)                                                 | 9,947                               |
|                                                                                 |                                |
| F&D costs (excluding changes in FDC)                                             |                                |
| Proved reserves ($/boe)                                                              | 10.40                               |
| Proved plus probable reserves ($/boe)                                                | 13.28                               |
|                                                                                 |                                |
| F&D costs (including changes in FDC)                                             |                                |
| Proved reserves ($/boe)                                                              | 13.13                               |
| Proved plus probable reserves ($/boe)                                                | 15.43                               |
|                                                                                 |                                |
| Recycle ratios                                                                       |                                |
| Operating netbacks ($/boe) (1)                                                       | 23.62                               |
| Operating recycle ratio (based on proved reserves including FDC)                     | 1.8                                 |
| Operating recycle ratio (based on proved plus probable reserves including FDC)       | 1.5                                 |
| Corporate netbacks ($/boe) (2)                                                       | 16.93                               |
| Corporate recycle ratio (based on proved reserves including FDC)                     | 1.3                                 |
| Corporate recycle ratio (based on proved plus probable reserves including FDC)  | 1.1                                 |

| (1)   | Operating netbacks are production revenue less royalties and operating expenses. |
|-----------------|----------------------------------------------------------------------------------|

| (2)   | Corporate netbacks are production revenue less royalties, operating expenses, G&A, interest expense and other cash costs. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------|

|                        |   | Light/ |   |   |   |   |   |   |   |   |    |   |   |   |    |   | Net Present Value     |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|-----------------------|--------|
|                        |   | Medium |   |   | Heavy  |   |   |   |   |   | Natural |   |   |   |    |   | Before Income Tax ($) |   |
|                        |   | Oil    |   |   | Oil    |   |   | NGL    |   |   | Gas     |   |   | Total  |    |   |                  |   |   |   |   |   |   |   |
|                        |   | (mbbl) |   |   | (mbbl) |   |   | (mbbl) |   |   | (mmcf)  |   |   | (mboe) |    |   |                  | 0      | % |   |   | 5 | % |   |   | 10 | % |
| Canadian Assets             |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |                  |   |   |   |   |   |   |   |   |   |   |
| Proved Producing            |   |   | 1,551  |   |   |   | 357    |   |   |   | 53      |   |   |   | 3,022   |   |                  |   | 2,465 |   |   |   | 98,823 |   |   |   | 81,786 |   |   |   | 70,460 |   |
| Proved Non-Producing        |   |   | -      |   |   |   | -      |   |   |   | 4       |   |   |   | 203     |   |                  |   | 38 |   |   |   | (3,031 | ) |   |   | (2,573 | ) |   |   | (2,221 | ) |
| Proved Undeveloped          |   |   | 1,011  |   |   |   | 120    |   |   |   | 33      |   |   |   | 1,613   |   |                  |   | 1,433 |   |   |   | 28,137 |   |   |   | 16,789 |   |   |   | 9,386 |   |
| Total Proved                |   |   | 2,562  |   |   |   | 477    |   |   |   | 90      |   |   |   | 4,838   |   |                  |   | 3,935 |   |   |   | 123,929 |   |   |   | 96,002 |   |   |   | 77,625 |   |
| Total Probable              |   |   | 1,105  |   |   |   | 297    |   |   |   | 40      |   |   |   | 2,218   |   |                  |   | 1,812 |   |   |   | 75,197 |   |   |   | 44,729 |   |   |   | 30,280 |   |
| Total Proved & Probable |   |   | 3,667  |   |   |   | 774    |   |   |   | 130     |   |   |   | 7,056   |   |                  |   | 5,747 |   |   |   | 199,126 |   |   |   | 140,731 |   |   |   | 107,905 |   |
| United States Assets        |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved Producing            |   |   | 498    |   |   |   | -      |   |   |   | 9,820   |   |   |   | 75,097  |   |                  |   | 22,834 |   |   |   | 602,074 |   |   |   | 432,976 |   |   |   | 333,895 |   |
| Proved Non-Producing        |   |   | -      |   |   |   | -      |   |   |   | -       |   |   |   | -       |   |                  |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Proved Undeveloped          |   |   | -      |   |   |   | -      |   |   |   | 3,506   |   |   |   | 27,467  |   |                  |   | 8,084 |   |   |   | 166,948 |   |   |   | 87,075 |   |   |   | 45,116 |   |
| Total Proved                |   |   | 498    |   |   |   | -      |   |   |   | 13,326  |   |   |   | 102,564 |   |                  |   | 30,918 |   |   |   | 769,022 |   |   |   | 520,051 |   |   |   | 379,011 |   |
| Total Probable              |   |   | 1      |   |   |   | -      |   |   |   | 603     |   |   |   | 5,367   |   |                  |   | 1,499 |   |   |   | 36,144 |   |   |   | 23,384 |   |   |   | 16,368 |   |
| Total Proved & Probable |   |   | 499    |   |   |   | -      |   |   |   | 13,929  |   |   |   | 107,931 |   |                  |   | 32,417 |   |   |   | 805,166 |   |   |   | 543,435 |   |   |   | 395,379 |   |
| Consolidated Assets         |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proved Producing            |   |   | 2,049  |   |   |   | 357    |   |   |   | 9,873   |   |   |   | 78,119  |   |                  |   | 25,299 |   |   |   | 700,897 |   |   |   | 514,762 |   |   |   | 404,355 |   |
| Proved Non-Producing        |   |   | -      |   |   |   | -      |   |   |   | 4       |   |   |   | 203     |   |                  |   | 38 |   |   |   | (3,031 | ) |   |   | (2,573 | ) |   |   | (2,221 | ) |
| Proved Undeveloped          |   |   | 1,011  |   |   |   | 120    |   |   |   | 3,539   |   |   |   | 29,080  |   |                  |   | 9,517 |   |   |   | 195,085 |   |   |   | 103,864 |   |   |   | 54,502 |   |
| Total Proved                |   |   | 3,060  |   |   |   | 477    |   |   |   | 13,416  |   |   |   | 107,402 |   |                  |   | 34,854 |   |   |   | 892,951 |   |   |   | 616,053 |   |   |   | 456,636 |   |
| Total Probable              |   |   | 1,106  |   |   |   | 297    |   |   |   | 643     |   |   |   | 7,585   |   |                  |   | 3,310 |   |   |   | 111,341 |   |   |   | 68,113 |   |   |   | 46,648 |   |
| Total Proved & Probable |   |   | 4,166  |   |   |   | 774    |   |   |   | 14,059  |   |   |   | 114,987 |   |                  |   | 38,164 |   |   |   | 1,004,292 |   |   |   | 684,166 |   |   |   | 503,284 |   |

| (1)   | The U.S. reserve report was converted to Canadian dollars using the Bank of Canada close rate on December 31, 2011 of CAD$1.017 per US$1.00. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| Outstanding Equity Data as at                       |   | March 20, 2012 |       |   | December 31, 2011 |   |       | December 31, 2010 |   |
|-----------------------------------------------------|--------|----------------|------------|--------|-------------------|--------|------------|-------------------|--------|
| Shares                                              |   |           | 34,989,069 |   |              |   | 34,779,435 |              |   |   | 27,709,859 |   |
| Share options                                       |   |           | 1,257,312  |   |              |   | 1,303,495  |              |   |   | 1,058,152 |   |
| Restricted shares                                   |   |           | 1,523,665  |   |              |   | 946,285    |              |   |   | 507,759 |   |
| 6.75% Convertible debentures ($1,000 per debenture) |   |           | 45,000     |   |              |   | 45,000     |              |   |   | - |   |
| 8.0% Convertible debentures ($1,000 per debenture)  |   |           | -          |   |              |   | -          |              |   |   | 80,127 |   |
| 8.25% Convertible debentures ($1,000 per debenture) |   |           | -          |   |              |   | -          |              |   |   | 39,648 |   |

| ·   | estimated depletion and depreciation that are based on estimates of oil, NGL and natural gas reserves and useful lives of equipment; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | property, plant and equipment is aggregated into cash-generating units based on management’s judgment of their ability to generate largely independent cash flows; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated future recoverable value of property, plant and equipment that are based on estimates of oil, NGL and natural gas reserves that Equal expects to recover in the future; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated future recoverable value of assets that are transferred from E&E to property, plant and equipment based on oil, NGL and natural gas reserves; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated value of decommissioning provision obligations that are dependent upon estimates of future costs and timing of expenditures; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated fair values of derivative contracts that are subject to fluctuation depending upon the underlying commodity prices; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated expenses from Equal’s share-based compensation plans that are based on pricing models such as the Black-Scholes model; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | estimated deferred income taxes which are dependent upon tax interpretations, regulations and legislation in various jurisdictions in which the Company operates that are subject to change. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| EQUAL ENERGY LTD.        |
|-------------------------------|
| MESSAGE TO SHAREHOLDERS  |

| AECO         | a storage and pricing hub for Canadian natural gas market |   | mcf           | thousand cubic feet of natural gas                           |
|--------------|-----------------------------------------------------------|--------|---------------|--------------------------------------------------------------|
| bbl or bbls  | barrels of oil                                            |   | mcf per day   | thousands of cubic feet of natural gas per day               |
| bbls per day | barrels of oil per day                                    |   | mmbtu         | millions of British Thermal Units                            |
| boe          | barrels of oil equivalent (6 mcf equivalent to 1 bbl)     |   | mmbtu per day | millions of British Thermal Units per day                    |
| boe per day  | barrels of oil equivalent per day                         |   | mmcf          | millions of cubic feet of natural gas                        |
| Cdn$         | Canadian dollars                                          |   | Mwh           | megawatt-hour                                                |
| FD&A     | Finding Development & Acquisition Costs               |   | NGL           | natural gas liquids (ethane, propane, butane and condensate) |
| FDC          | Future Development Costs                                  |   | NI 51-101     | National Instrument 51-101                                   |
| GAAP         | Canadian Generally Accepted Accounting Principles         |   | NYMEX         | New York Mercantile Exchange                                 |
| GJ           | Gigajoule                                                 |   | Q1            | first quarter of the year - January 1 to March 31            |
| GORR         | Gross overriding royalty                                  |   | Q2            | second quarter of the year - April 1 to June 30              |
| IFRS         | International Financial Reporting Standards               |   | Q4            | third quarter of the year - July 1 to September 30           |
| LNG          | Liquefied Natural Gas                                     |   | Q4            | fourth quarter of the year - October 1 to December 31        |
| mbbl         | thousand barrels of oil                                   |   | US$           | United States dollars                                        |
| mboe         | thousands of barrels of oil equivalent                    |   | WTI           | West Texas Intermediate (oil reference price)                |

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